SmileDirectClub($SDC) Investor Settlement

SmileDirectClub, Inc. reached a tentative settlement to resolve investor claims that the company and other defendants made materially false or misleading statements about its financial performance, customer experience, dental-care practices, and regulatory risks.

Outline:

SmileDirectClub raised more than $1.3 billion in its September 2019 IPO at $23 per share. Investors later alleged that the company presented misleading information about its growth, customer satisfaction, treatment practices, and regulatory exposure. A series of subsequent disclosures was followed by substantial declines in SmileDirectClub’s stock price. The securities litigation has now reached a tentative settlement.

Timeline:

• September 12, 2019: SmileDirectClub completed its IPO, selling 58.5 million shares at $23 per share and raising more than $1.3 billion.

• September 24, 2019: A group of dentists, orthodontists, and consumers filed a lawsuit challenging SmileDirectClub’s treatment model and alleging that patients lacked meaningful relationships with treating dentists.

• October 4, 2019: Hindenburg Research published a report raising concerns about SmileDirectClub’s treatment practices, regulatory issues, and more than 1,000 Better Business Bureau complaints.

• October 13, 2019: California Governor Gavin Newsom signed AB 1519, imposing additional requirements on teledentistry providers, including review of patient radiographs and restrictions affecting SmileDirectClub’s business practices.

• October 16, 2019: SmileDirectClub and its Chief Clinical Officer filed a lawsuit against the Dental Board of California that disclosed earlier investigations and raids of SmileDirectClub locations in the state.

• November 12, 2019: SmileDirectClub reported third-quarter results showing declining revenue growth, gross profit, and Adjusted EBITDA, along with significantly higher legal expenses.

• February 13, 2020: NBC Nightly News aired an investigation highlighting customer complaints, alleged treatment injuries, and calls from members of Congress for federal regulators to investigate SmileDirectClub.

• February 25, 2020: SmileDirectClub disclosed a roughly $60 million Adjusted EBITDA shortfall and cited manufacturing inefficiencies, legal costs, and lobbying expenses as contributing factors.

• March 12, 2020: SmileDirectClub announced changes to its customer-screening, SmileShop training, and dentist-communication procedures as its stock traded as low as $5.30 per share, approximately 77% below the IPO price.

Background:

SmileDirectClub operated a direct-to-consumer teledentistry platform that sold clear dental aligners as a lower-cost alternative to traditional orthodontic treatment. In September 2019, the company completed an IPO at $23 per share and raised more than $1.3 billion.

The lawsuit alleges that the IPO materials emphasized SmileDirectClub’s “accelerating growth” even though the company’s revenue, gross profit, and Adjusted EBITDA trends had already begun declining. Plaintiffs claim investors were not told that the positive financial trends highlighted in the offering documents had reversed before the IPO.

Investors also allege that SmileDirectClub overstated customer satisfaction. Although the company promoted highly positive member experiences, the complaint claims that more than 1,000 complaints had been filed with the Better Business Bureau and that some customers reported medical problems, improperly fitting aligners, difficulty obtaining refunds, and other treatment concerns.

The complaint further challenges SmileDirectClub’s standard of care. Plaintiffs allege that customers could receive treatment without traditional dental examinations or x-rays, that sales personnel were pressured to achieve high conversion rates, and that treatment plans could be approved without meaningful review by licensed dentists.

Regulatory issues also became a major concern. The complaint alleges that SmileDirectClub failed to adequately disclose a California Dental Board investigation, raids of company locations, complaints from dental organizations, and pending California legislation that imposed new requirements on teledentistry providers.

As information about these issues and SmileDirectClub’s weakening financial performance became public, the company’s stock declined sharply from its $23 IPO price. By March 12, 2020, the shares had traded as low as $5.30, and the plaintiffs allege investors suffered losses as the previously undisclosed information reached the market.

What Can Investors Expect Now?

SmileDirectClub, Inc. reached a tentative settlement to resolve investor claims that the company and other defendants made materially false or misleading statements about its financial performance, customer experience, dental-care practices, and regulatory risks.

If you were damaged due to this situation, you can file for a payout and get your share of the settlement. You can check if you are eligible and other details in the FAQ section.